Are business schools breeding grounds for crooks?
MBA News Barbara Bierach / 07-23-2012
Luigi Zingales is a professor at the University of Chicago Booth School of Business and has lately wondered publicly if Business Schools incubate criminals. Or that is at least the title of an article he recently published with Bloomberg Media. The recent scandals at HSBC, Barclays, JP Morgan Chase, Goldman Sachs and others do indeed indicate that at least the MBA-ridden financial services industry has serious issues with ethics. Zingales even thinks “it’s worse than that: We are dealing with a drop in ethical standards throughout the business world, and our graduate schools are partly to blame.”
Zingales examples are prominent ones: he names McKinsey director Anil Kumar, graduate of the University of Pennsylvania’s Wharton School, who pleaded guilty to providing insider information to hedge-fund manager and fellow Wharton alumnus Raj Rajaratnam. Rajat Gupta, a graduate of Harvard Business School and McKinsey’s former worldwide boss was convicted of insider trading in the same case.
“Where did Gupta, Kumar and others get the idea that this kind of behaviour might be OK?,” asks Zingales. He does not explicitly say “in business school”, but goes on criticising the way ethics are taught there. “Some simply illustrate ethical dilemmas without taking a position on how people are expected to act,” he explains. “It is as if students were presented with the pros and cons of racial segregation, leaving them to decide which side they wanted to take.” Others would “hide” behind the concept of corporate social responsibility, suggesting that social obligations rest on firms, not on individuals. Zingales uses the notion of “hiding” purposefully “because a firm is nothing but an organized group of individuals”. In his view we need to talk about individual social responsibility first. “If we do not recognize the latter, we cannot talk about the former.”
Experimental evidence suggests that the teaching of economics does have an effect on students’ behaviour: It makes them more selfish and less concerned about the common good. This is not intentional. Most teachers are not aware of what they are doing. “If teachers pretend to be agnostic, they subtly encourage amoral behaviour without taking any responsibility,” writes Zingales.
In his view there must be a better way to install ethics into MBA students and “not in separate classes in which a typically low-ranking professor preaches to students who would rather be somewhere else”. This approach, stresses the professor only perpetuate the notion that “ethics are only for those students who aren’t smart enough to avoid getting caught”. Zingales suggests that ethics should rather become an integral part of the so-called core classes - such as accounting, corporate finance, macroeconomics and microeconomics, taught by the most respected professors. They “should make their students aware of costs of violating ethical norms in real business settings, as well as the broader social downsides of acting solely in one’s individual best interest.”
His suggestion aims at nothing less than making business schools contribute to a social consensus that would discourage maybe not outright criminal behaviour, but at least diffuse fraud, like fiddling with the Libor rates or the dishonest schemes that created the subprime crisis. “The daily scandals that expose corruption and deception in business are not merely the doing of isolated crooks,” says the Booth professor. “They are the result of an amoral culture that we - business-school professors - helped foster. The solution should start in our classrooms.”
University of Chicago Booth School of Business
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